Monday, December 15, 2008

‘Tis the season… for employee theft

In the wake of the recession, more businesses are facing a growing financial threat: employee theft. New research shows that employers are seeing an increase in internal crimes, ranging from fictitious sales transactions and illegal kickbacks to the theft of office equipment and retail products meant for sale to customers.

Employers suspect that workers are pilfering from them to cope with financial difficulties at home or in anticipation of being laid off.

What's more, it's often the most trusted workers who are committing the thefts….

Employers are hot targets for theft because workers “know their systems, controls and weaknesses, and they can bide their time waiting for the right opportunity,” says Mark R. Doyle, president of Jack L. Haynes International Inc., a provider of workplace crime-prevention services based in Fruitland Park, Fla.

Consider the following statistics:

20% of employers say workplace theft has become a moderate to very big problem recently.

18% have noticed a recent rise in monetary theft among employees, such as fraudulent transactions or missing cash.

24% have detected an increase in stolen nonmonetary items, such as retail products and office supplies.

25% of all reported internal frauds are committed by senior-level employees with an average tenure of 7½ years.

In 2007, 1 out of every 28 employees was caught stealing, an 18% increase from the prior year.

What can employers do to curb this disturbing trend? I suggest a five-step attack:

Communicate: Employees need to know that theft of any nature and in any amount simply will not be tolerated. This message should be delivered in writing through the employee handbook or a stand-alone corporate ethics policy. Also, it is incumbent upon the highest levels of management to set a good example for all employees to follow. The best defense against employee theft is fostering an environment of ethics and integrity.

Investigate: Proper investigation requires having the tools in place to detect theft or fraud and acting swiftly when misconduct is discovered. Proper tools include surveillance cameras, tracking devices, and routine audits of books and records. Also, if something just doesn’t look right (has an employee started submitting unusually large expense reports without sufficient documentation, for example?) ask questions. Don’t just assume that a good employee cannot succumb to temptation. A company may also want to consider bringing in a third-party to conduct the investigation, depending on the sophistication and amount of the theft.

Document: Once a theft is detected, a company has to act swiftly to complete a full investigation. This investigation includes interviewing any potential witnesses and gathering all necessary documents to support to a case against the employee. Documentation is key both to support a termination decision and to go after an employee for restitution. Companies should also consider filing a police report in cases of employee theft.

Terminate: No other form or discipline should be an option. Theft is a serious offense. It represents a total breakdown of trust between a company and an employee. If an investigation concludes that an employee has stolen from the company, that employee should be immediately fired.

Litigate: Employers have two choices – filing a civil lawsuit to recover the stolen funds or property, or seeking criminal prosecution. Companies can run these options in tandem, but in my experience overburdened prosecutors’ offices are less likely to pursue an indictment if a civil case is pending, since the company already has a way to be made whole. In considering whether the pursue legal action against an employee, companies have to balance the potential deterrent effect on current employees versus the potential negative effect on employee morale. Because of these concerns, litigation will not be appropriate in all cases of employee theft.

Tomorrow, we’ll examine one of the best tools Ohio employers have to combat employee theft through the courts, Ohio’s civil theft statute.

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